The Internal Revenue Service announced plans yesterday to closely examine 2,000 nonprofits across the country to determine whether their compensation packages for top managers and other organization leaders are too lavish.
The IRS, which has been under pressure from Congress to more aggressively police the nation's charities, said the initiative is part of a new effort to crack down on charities that abuse their tax-exempt status by offering exorbitant salaries and sweetheart deals to executives, trustees and other insiders. The enforcement campaign includes hiring dozens more IRS agents.
Congress has been prodding the IRS for months to take such action after revelations about questionable practices at a range of nonprofits across the country.
Locally, The Washington Post reported last year that the Nature Conservancy had repeatedly bought land and then resold the properties to its trustees and other supporters at reduced prices. And Oral Suer, the former chief executive of the United Way of the National Capital Area, was sentenced to 27 months in prison in May after admitting that he charged personal expenses to the organization and paid himself for annual leave he had used.
Some charitable foundations have been found to be spending more on executive compensation than they were giving to charities.
In the past, charity watchdog groups and even some charities have complained that IRS oversight of nonprofits is weak and that it devotes too few resources to auditing their tax returns.
But yesterday's IRS announcement "is a way of alerting the charitable community to 'Pay attention to what you're doing,' " said Fred T. Goldberg, a former IRS commissioner. "We're not messing around."
Steven T. Miller, commissioner of the IRS's tax-exempt and government entities division, said the IRS has sent out several hundred letters to nonprofits asking them about the compensation of specific individuals whose pay seems "out of whack" with the size of the organization.
It is also examining a variety of insider transactions, such as loans and the sale or leasing of charity property to charity insiders, Miller said.
If improprieties are found, penalties include everything from fines to revocation of the charity's tax-exempt status, Miller said.
"We want to raise awareness in the [nonprofit] community that we . . . have a strong interest in this area so we can possibly change the way organizations are setting compensation," Miller said.
Some charity leaders -- whose industry has been tarnished by reports of lavish spending at some nonprofits -- praised the initiative.
"This is the sort of thing that we have been hoping for," said Dot Ridings, president of the Council on Foundations. "Our concern has been that they didn't do this before."
But Senate Finance Committee Chairman Charles E. Grassley (R-Iowa), whose committee is looking at legislation to tighten oversight of nonprofits, said that stronger laws governing executive pay and other compensation deals at charities are still needed.
Currently, a charity must show that it has compared its salaries with those paid at organizations of similar size. The comparisons may be made with businesses as well as charities. Other regulations stipulate only that pay and benefits be "reasonable" and "not excessive."
Senate staff members say those standards are too vague.
"You can have some outrageous deals that are perfectly legal under the law," one said.